Bring back managed trade to help workers’ safety

 

Bloomberg.com

If all it took were official cajoling, public shaming, technical assistance or corporate promises, factory jobs in Bangladesh and other developing countries wouldn’t be so deadly.

Their failure to make a difference unmistakably signals that disasters such as the building collapse last month near Dhaka that killed more than 1,100 people stem from systemic problems in global trade rather than the shortcomings of individual companies, industries and countries.

Some barriers to better work conditions in the developing world defy quick solutions. Limited skill requirements will keep wages in light industry relatively low. So will the abundant labor available. As a result, tougher responses — such as trade sanctions — would mainly harm the victimized workers themselves.

There is one action, however, that can at least ease pressure toward lower wages and margins, and create some genuine incentives for better pay and safer workplaces: re-establishing the quota system that once governed world apparel trade.

Import barriers such as those available under the Multifibre Arrangement seem unlikely candidates for helping garment workers. And a major aim of such trade management was to try to slow the decline of higher cost U.S. and European textile and apparel industries.

Yet developing countries clearly were the big winners during the MFA’s 1974-2005 lifespan. As garment production and employment plummeted in developed countries, the sector boomed in the developing world, largely thanks to exports. Production also dispersed geographically, enabling dozens of very poor economies outside East Asia’s early and rapid developers to start reaping industrialization’s benefits.

Success was owed largely to the agreement’s pragmatic, flexible provisions, combined with the mobility of apparel production. Importer governments retained great leeway in imposing quotas and could even waive them selectively. Moreover, garment tariffs stayed relatively high. Trade policy could be used to channel production toward and away from certain countries, serving a variety of national goals, including favoring former colonies, winning and supporting allies, and providing some protection for domestic industries.

Yet importing countries also pledged to increase quotas according to a specified schedule, which permitted continued growth in production and employment in poorer nations. Even better for the poorest, quotas on their own competitors among developing nations meant that they could create garment industries without excessive reliance on undercutting by the likes of China and India in terms of wages and regulatory safeguards.

Similarly, businesses didn’t have as much incentive to create margins by maximizing exploitation. In fact, the system could have been used to reward employer responsibility — though it seldom did.

U.S. trade data make clear the MFA’s benefits for developing countries. From 1989 (the earliest consistent figures readily available) until 1995, apparel imports rose almost 62 percent in nominal terms, to $39.44 billion from $24.35 billion. The established major low-income Asian exporters — especially China, India and Indonesia — more than doubled their U.S. sales. And Mexico’s exports more than quadrupled, thanks largely to the North America Free Trade Agreement. Similar preferences helped spur even faster growth in Central America and the Caribbean. The Middle East and sub-Saharan Africa registered sizable gains, too, and many smaller African countries entered the U.S. market for the first time.

Yet the global treaty that created the World Trade Organization decreed a 10-year phase out for the MFA starting in 1995. This decision was a response to the retail industry’s seeking maximum sourcing flexibility, Western governments seized by post-Cold War free-market purism, larger developing-world exporters counting on dominating world markets and many smaller developing countries swept up in misplaced Third World solidarity.

Apparel exports still faced tariffs, which meant importing countries could continue to dole out limited policy favors. Moreover, a few new restraints were approved, including WTO permission to impose temporary tariffs on surges of Chinese garment shipments after China joined the trade body.

But without quota-granted guaranteed market access, cost- cutting became all the more important for smaller exporting countries simply to preserve their new gains. As U.S. trade data demonstrate, most of the freed-up customers were won by the huge Asian producers that enjoyed big natural and government-created cost advantages. For example, China’s share of U.S. apparel imports rose to 33.44 percent from 26.07 percent during the first two years of quota-free trade (2005-07) alone. Indonesian and Vietnamese sales boomed, too.

Significantly, Bangladesh also excelled, and like China, Indonesia and especially Vietnam, its market share has continued to grow, reaching 5.25 percent last year, despite the sluggish U.S. economy.

Unfortunately, however, much of the surge in Bangladeshi exports can be attributed to that country’s reliance on rock- bottom wages and firetrap factories, with the tragic consequences we recently witnessed.

Worse, the dynamics of today’s quotaless apparel trade practically guarantee that better, costlier work conditions in Bangladesh will simply drive much production and jobs elsewhere. That is what occurred in higher-cost garment exporters such as Turkey and South Africa, as well as smaller Western Hemisphere and African producers — most of whose U.S. exports have fallen in absolute terms since the quotas ended in 2005.

Re-establishing quotas, especially with expansion requirements, could begin reversing today’s perverse incentives. The biggest exporting countries could easily block WTO adoption — as well as any moves toward mandatory international labor standards. But management of the garment trade could be re- created through less orthodox approaches outside the WTO, especially since broad international support is easily within reach.

U.S. consumers appear increasingly receptive to such ideas. The European Union has already warned Bangladesh that it could face sanctions. And even before the quotas ended, dozens of non- Asian garment producers signaled their second thoughts by agitating for extensions.

The biggest missing ingredient is interest from President Barack Obama, who remains silent three weeks after the Bangladesh disaster.

Alan Tonelson is a research fellow at the U.S. Business and Industry Council, which represents almost 2,000 domestic manufacturing companies. He is the author of “The Race to the Bottom: Why a Worldwide Worker Surplus and Uncontrolled Free Trade Are Sinking American Living Standards.”

© 2013, Bloomberg News

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